ARYA OFFSHORE SERVICES P.LTD, MUMBAI V. DCIT CEN CIR 6(4), MUMBAI

ITA 4624/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0537 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 05-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Keywords: Gift
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM) & SHRI PAWAN SINGH (JM) I.T.A. NO. 4624 /MUM/20 16 (ASSESSMENT YEAR 20 10 - 11 ) I.T.A. NO. 4625/MUM/2016 (ASSESSMENT YEAR 2012 - 13) ARY A OFFSHORE SERVICES PVT. LTD. UNIT N O. 801, GODREJ COLISEUM, C - WING OFF SOMAIYA HOSPITAL ROAD SION , MUMBAI - 400 022. PAN : AAACA1034D V S . DCIT, CC - 6(4) ROOM NO. 1925 19 TH FLOOR AIR INDIA BUILDING NARIMAN POINT MUMBAI - 400 021. ( APPELLANT ) ( RESPONDENT ) A SSESSEE BY SHRI NITESH JOSHI DEPARTMENT BY S HRI T.A. KHAN DATE OF HEARING 30 . 0 1 . 201 8 DATE OF PRONOUNCEMENT 30 . 0 1 . 201 8 O R D E R PER B ENCH : - BOTH THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS PASSED BY THE LEARNED CIT(A) - 54, MUMBAI AND THEY RELATE T O A.YS. 2010 - 11 & 2012 - 13. SINCE IDENTICAL ISSUES ARE CONTESTED IN THESE APPEALS , THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. FIST ISSUE CONTESTED IN BOTH THE APPEALS RELATES TO DISALLOWANCE MA DE U/S. 14A OF THE ACT. DURING THE YEAR RELEVANT TO A.Y. 2010 - 11, THE ASSESSEE RECEIVED DIVIDEND INCOME OF ` 80,000/ - . THE ASSESSEE SUO - MOTO DISALLOWED A SUM OF ` 5000/ - U/S. 14A OF THE ACT. HOWEVER, THE ASSESSING OFFICER TOOK THE VIEW THAT DISALLOWANCE HA S TO BE COMPUTED AS PER RULE 8D OF THE I.T. RULES AND ACCORDINGLY MADE DISALLOWANCE OF ` 1,12,252/ - U/S. 14A OF THE ACT. 3. IN THE YEAR RELEVANT TO A.Y. 2012 - 13 ALSO THE ASSESSEE MADE A DISALLOWANCE OF ` 5000/ - U/S. 14A OF THE ACT AND ASSESSING OFFICER MA DE ARYA OFFSHORE SERVICES PVT. LTD. 2 ADDITION OF ` 7,04,745/ - BY COMPUTING DISALLOWANCE AS PER RULE 8D OF THE I.T. RULES. 4. THE LEARNED CIT(A) GAVE PARTIAL RELIEF TO THE ASSESSEE IN BOTH THE YEARS BY DELETING THE DISALLOWANCE OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II) OF THE I.T RULES AND SUSTAINED THE DISALLOWANCE MADE OUT OF ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) . 5. THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS MADE INVESTMENT IN BOTH THE YEARS ONLY IN ITS SUBSIDIARY AND GROUP COMPANIES AND HENCE ALL THE INVESTMENTS FALL UN DER THE CATEGORY OF STRATEGIC INVESTMENTS. THE LEARNED AR FURTHER SUBMITTED THAT THE ASSESSEE HAS MADE INVESTMENTS ONLY IN THREE COMPANIES IN BOTH THE YEARS UNDER CONSIDERATION. THESE INVESTMENTS HAVE BEEN BROUGHT FORWARD FROM EARLIER YEARS EXCEPT THE FAC T THAT THE ASSESSEE HAS INCREASED ITS INVESTMENT IN ONE OF THE COMPANIES DURING THE YEAR RELEVANT TO AY 2012 - 13. HE SUBMITTED THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME FROM ONE OF THE COMPANIES ONLY. ACCORDINGLY HE SUBMITTED THAT THERE IS NO MUCH AC TIVITY IN THE INVESTMENT PORTFOLIO AND ACCORDINGLY CONTENDED THAT THE DISALLOWANCE OF RS.5000/ - MADE IN BOTH THE YEARS U/S 14A OF THE ACT WOULD MEET THE REQUIREMENTS OF LAW. THE LD A.R ALSO SUBMITTED THAT THE AO HAS MECHANICALLY APPLIED THE PROVISIONS OF RULE 8D WITHOUT FINDING FAULT WITH THE CLAIM OF THE ASSESSEE AND WITHOUT RECORDING SATISFACTION THAT THE WORKINGS MADE BY THE ASSESSEE WAS NOT CORRECT. 6. ON THE CONTRARY, THE LD D.R SUPPORTED THE ORDERS PASSED BY LD CIT(A). 7. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. IT WAS SUBMITTED THAT THE ASSESSEE HAS RECEIVED DIVIDEND FROM ONLY ONE OF THE COMPANIES. THE LD A.R SUBMITTED THAT ALL THE INVESTMENTS ARE STRATEGIC INVESTMENTS AND HENCE THEY ARE REQUIRED TO BE EX CLUDED FROM THE VALUE OF INVESTMENTS AS PER THE DECISION OF CO - ORDINATE BENCH RENDERED IN THE CASE OF GARWARE WALLROPES LTD (ITA NO.5408/M/2012 DATED 15.01.2014). IF WE EXCLUDE THE STRATEGIC INVESTMENTS, THEN THERE REMAINS NO AMOUNT TO BE ARYA OFFSHORE SERVICES PVT. LTD. 3 DISALLOWED UNDER RULE 8D(2)(III) OF THE I.T RULES. WE HAVE EARLIER NOTICED THAT THE DISALLOWANCE OF INTEREST EXPENDITURE MADE UNDER RULE 8D(2)(II) HAS ALREADY BEEN DELETED BY LD CIT(A). 8. WE NOTICE THAT THE ASSESSEE HAS MADE INVESTMENTS ONLY IN ITS GROUP CONCERNS AND THEY HAVE BEEN BROUGHT FORWARD FROM EARLIER YEARS EXCEPT THE FACT THAT THE ASSESSEE HAS MADE FURTHER INVESTMENTS IN ONE OF THE COMPANIES DURING THE YEAR RELEVANT TO AY 2012 - 13. THE ASSESSEE HAS ALSO RECEIVED DIVIDEND INCOME FROM ONE OF THE COMPANIES ONLY. THESE FACTS SUPPORT THE CONTENTIONS OF THE ASSESSEE THAT THERE WAS NO MUCH ACTIVITY IN THE INVESTMENT PORTFOLIO OF THE ASSESSEE. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF RS.5000/ - MADE BY THE ASSESSEE IN BOTH THE YEARS WOULD MEET THE REQUIREMENTS OF SEC. 14A OF THE ACT. ACCORDINGLY WE SET ASIDE THE ORDERS PASSED BY LD CIT(A) ON THIS ISSUE IN BOTH THE YEARS UNDER CONSIDERATION AND DIRECT THE AO TO RESTRICT THE DISALLOWANCE U/S 14A OF THE ACT TO RS.5000/ - IN EACH YEAR. 9 . THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE ADHOC DISALLOWANCE MADE BY THE ASSESSING OFFICER OUT OF GENERAL EXPENSES. THE ASSESSING OFFICER MADE ADHOC DISALLOWANCE OF RS.500000/ - IN AY 2010 - 11 OUT OF EXPENDITURE INCURRED UNDER THE HEADS GIFT , ENTERTAINMENT, BUSINESS PROMOTION AND GUEST HOUSE. IN AY 2012 - 13, THE AO MADE ADHOC DISALLOWANCE OF RS.5,30,875/ - FROM OUT OF THE ABOVE SAID EXPENSES. THE LD CIT(A) RESTRICTED THE DISALLOWANCE TO 50% IN BOTH THE YEARS UNDER CONSIDERATION. 10. THE LD A .R SUBMITTED THAT THE ASSESSING OFFICER DID NOT GIVE ANY VALID REASON FOR MAKING ADHOC DISALLOWANCE IN BOTH THE YEARS. ACCORDINGLY HE CONTENDED THAT THE ENTIRE DISALLOWANCE SHOULD BE DELETED. IN THE ALTERNATIVE, HE SUBMITTED THAT THE CO - ORDINATE BENCH OF TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN THE CASE OF A GROUP CONCERN OF THE ASSESSEE NAMED J.M.BAXI & CO. VS. DCIT (ITA NO.5606/MUM/2011 DATED 11.07.2012) AND THE TRIBUNAL ARYA OFFSHORE SERVICES PVT. LTD. 4 HAS RESTRICTED THE DISALLOWANCE TO 50% OF THE AMOUNT SUSTAINED BY LD CIT(A), I .E., AT 25% OF THE AMOUNT DISALLOWED BY THE AO. 11. THE LD D.R, ON THE CONTRARY, PLACED RELIANCE ON THE ORDER PASSED BY LD CIT(A). 12. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSUE AND PERUSED THE RECORD. A PERUSAL OF THE ASSESSMENT ORDER WOULD SHOW THA T THE DISALLOWANCE HAS BEEN MADE ON ADHOC BASIS WITHOUT GIVEN ANY VALID REASON. AT THE SAME TIME, WE NOTICE THAT THE CO - ORDINATE BENCH HAS CONSIDERED AN IDENTICAL ISSUE IN ONE OF THE GROUP CONCERNS OF THE ASSESSEE AND SUSTAINED DISALLOWANCE TO THE EXTENT OF 25% TO TAKE CARE OF REVENUE LEAKAGES. HENCE, CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN THE GROUP CONCERN OF THE ASSESSEE, WE DIRECT THE AO TO SUSTAIN DISALLOWANCE IN BOTH THE YEARS TO 25% OF THE AMOUNT DISALLOWED BY HIM. THE ORDERS PASSED BY L D CIT(A) IN BOTH THE YEARS ON THIS ISSUE WOULD STAND MODIFIED ACCORDINGLY. 13. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 30 . 0 1 .201 8 . SD/ - SD/ - (PAWAN SINGH ) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 30 / 0 1 / 20 1 8 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, I TAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// SENIOR P RIVATE S ECRETARY PS ITAT, MUMBAI